In today’s economy, the middle class, long the economic engine of western society is brutally taking incessant pounding by employers who are cutting back wages trying to escape the grip of the meltdown as well as being overtaxed at a time when heavy taxation will only slow the economy, and may in fact place us back into a deeper recession.
As employers and managers in the automotive industry it is our responsibility to ensure that our dealerships and service repair facilities survive through the economic decline. Those that can hang on and work through the economic woes will be in a better position to take advantage of the turnaround when it actually happens. Facilities that can learn to prosper today while keeping their staffing levels up will not only be financially superior, they will have retained their greatest asset by way of keeping their exceptional talent, their employees.
Since the service department generates the most profit within a dealership you need to start thinking about your own stimulus package for the business and for the employees. Have a long look at your financials and review the summary reports for your advisors and your technicians for the last 120 days. Look at items on your financial statement such as Gross Profit % to sales, look at the mix of your work – what are the percentages of warranty, customer pay and internal.
Check to find out how much labor are you giving away for items such a lot damage or technician misdiagnosis. Look at your effective labor rate and the hours per RO that you have generated over the 120 days. Industry average for hours per RO is 2.6 yet to make money you should be at or over 3.0 hours per RO and I know there are dealers out there who wish they were even at 2.6.
To complete a robust plan of internal economic stimulus within your facility, you first need to figure what buttons you need to push. Is it your effective labor rate or hours per RO that require attention, possibly both require your attention. Next look at the advisor and technician compensation plans and determine if you are paying for performance in the right areas.
Giving your employees the opportunity to continue making enough money to maintain their standard of living is a powerful tool for the business and for the individual employee. We all know that building a team of winning individuals isn’t easy in the best of times however it becomes harder to build or maintain a winning team when individual or team motivational drive is not at its peak.
Let’s use some example numbers and extrapolate monetary differences to see the increases in real numbers. Let’s assume that dealership X charges $120.00 per flat rate hour for customer pay. Let’s assume that the current hours per RO are at 1.82 and the effective labor rate is $112.00. For this example the dealership usually produces an average of 2200 hours per month.
To get your numbers up you need to be doing a few other things in your service department first and you need to be doing them right! When you think that everyone has assimilated the new knowledge, policies and procedures you will need to check, double check and reteach, ensure that everyone is consistently performing at 100% plus and they are following the prescribed plan of action.
The first step is getting your advisors focused on service drive inspections, writing down all damages and selling them on the drive.
The second step is getting your advisors pumped to sell yearly alignments, safety inspections and yearly or mileage services. Advisors need to be focussed on the vehicle history page and find out what services have been missed in the past or need to be done today.
The third step is to have your technicians religiously performing a 31 point courtesy inspection on each and every vehicle, no exceptions.
The fourth step is to teach your advisors how to put together a proper ELECTRONIC estimate sheet that can be used to prepare proper accurate estimates for both customer concerns and additional new found sales from the courtesy inspections.
The fifth step is to show your advisors how to package price from the electronic estimate to increase your effective labor rate exponentially.
Let’s assume that you are now working on all of the items outlined above and you have these items under control. So let’s get to work!
Proper inspections, drive selling, estimate writing and checking vehicle service histories are all of a suddenly paying off for your dealership. And with the same number of technicians you have increased your hours per RO to 2.6 from 1.82 with the same number of RO’s at 1209. Your effective labor rate has risen to $128.60 so let’s do the math.
Prior to the changes your gross labor sales were at $246,442.56 now with 1209 work orders at 2.6 hours each you produced 3143.4 hours multiplied by the higher ELR of 128.60 equals total sales dollars of $404,241.24 a difference of $157,798.68. If you average out your gross profit % to sales (GP%Sales) as 70% your GP increase or return is substantial! Do the math in your own dealership or service department and look at the amount of revenue you may be leaving on the table.
Increasing your departments revenue by way of your employees working harder to get every dollar means they should get rewarded equally for their contributions to generating this profit. If they are making money, you are making money and this is how you will succeed in this tough economic climate, retain your excellent talent and come out of the recession ahead of the pack.
Keep inspecting; keep writing quality work orders and good up selling techniques will always win the day. Compensate your employees with productivity based compensation plans.
A well rounded productivity based compensation plan will always keep your employees focused on YOUR GOALS because now all of you, managers and employees have the same goals – MAKING MONEY!
David
